“This recovery has been fueled by a housing bubble, just as
the late 90s cycle was fueled by a stock bubble,” said Baker. “Now that the
housing market has weakened, Americans are looking at a recession in 2007.”

Baker expects that the weakness from the housing market,
which is already spreading over to other sectors of the economy, will have an
even larger impact in 2007 as consumers lose the ability to borrow against
dwindling home equity. With weak consumer demand dampening investment, the
economy is likely to shrink by close to 1 percentage point over the course of
the year.

Predictions for 2007 (2006Q4 –
2007Q4)

GDP growth

-0.7 percent

Job growth

-1.2 million

Nominal wage growth

3.4 percent

Inflation (CPI)

2.6 percent

Residential construction

-12.0 percent

Consumption

-1.2 percent

Investment

2.0 percent

Exports

4.0 percent

Imports

-2.0 percent

Government expenditures

2.0 percent

Baker also predicts that the Fed will begin lowering rates
no later than its first meeting in January 2007 and that unemployment will
climb to over 6 percent by the end of 2007.